The holiday season is a good time to take stock of the many
things for which we are thankful. This year the authors would like to publicly
express their gratitude for globalization.

Globalization is the name given to a trend in which nations
reduce barriers that have long prevented the world’s estimated 6.4 billion
people from establishing closer ties — be they personal or economic in nature.

Improving close business and human relationships among the
world’s people has serious implications. The noted French legislator Frederick
Bastiat once said, "If goods don’t cross borders, troops will." The point is
that war and other violent use of force should be made prohibitively expensive
through voluntary commercial exchanges. If you have personal or financial
investments around the world you will be less likely to agitate for war.

Despite Michigan’s recent economic woes, in 2004 it exported $35 billion worth of goods and services to the world, ranking it fourth among the states, up from sixth place in 1998.

In his book "In Defense of Global Capitalism," Johan Norberg
explains that in a free economy, "People create prosperity, not by annexing land
from another country, but by carrying on trade with that land and its
resources." For example, the 1990s brought an increase of 21 free countries
around the globe and "major conflicts . . . fell from 20 to 13 between 1991 and
1998," writes Norberg. Nine of the 13 were out of Africa, the least familiar
with free trade and market capitalism continent on earth. These numbers are not
coincidental.

Studies have consistently found a "Capitalist Peace" among the
wealthy nations of the world. Columbia University political scientist Erik
Gartzke has explained that democratic nations also happen to be more
economically free, so it can be difficult to determine which is more influential
to peace. But Gartzke notes that when both variables — economic freedom and
democracy — are factored into statistical models, economic freedom is shown to
be "50 times more potent" in encouraging peace than democracy.

"Peace on Earth" is not the only reason to allow free trade
across international borders. Studies consistently show that people who live in
open, trade-friendly economies have superior standards of living.

In May
2005 two researchers from the Institute for International Economics reported
that, as a result of lower barriers to trade and investment, and lower costs of
moving information and goods, the average household income in the U.S. is
$10,000 higher today than 50 years ago.

Despite
Michigan’s recent economic woes, in 2004 it exported $35 billion worth of goods
and services to the world, ranking it fourth among the states, up from sixth
place in 1998.

This is not the only good news about international trade and
investment. A study published by the National Bureau of Economic Research in its
journal NBER Digest last August reported that U.S. multinational firms that made
investments overseas increased their investments at home as well.

The study’s authors, Harvard scholars Mihir Desai and C. Fritz
Foley, and University of Michigan economist James Hines, estimate that capital
expenditure invested in foreign countries by affiliates of U.S. firms was
associated with $3.50 invested domestically by the same companies. Their
findings may indicate that capital invested overseas does not necessarily result
in less capital invested domestically.

Another benefit is the increased investment by foreign firms
on U.S. soil: Toyota, Honda, Mercedes, Hyundai and Nissan have all made
investments in the United States. It is possible that such investments would not
have occurred without lower trade barriers. But the blessings of open economies
are not limited to peace and profit. The world’s overall culture is arguably
enriched, too.

In Michigan, critics of globalization point to domestic job
losses as just one reason to fear greater international competition. The Delphi
bankruptcy is a recent symbol; but it is not a good one. Competitive pressure
from abroad is only one variable in that company’s decline. The ultimate
question regarding globalization is "Are nations better off in net terms thanks
to a global economy and greater human interaction?" We believe the answer is a
resounding "yes."

Economists disagree on many things, but they almost all
applaud open trade. The world’s steady march toward greater economic
competition, consumption, and peaceful exchange is nothing to be feared. Indeed,
greater globalization, not less, would be the perfect foundation to a Happy New
Year.

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Michael D. LaFaive is director of fiscal policy at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Steven Thomas is a Mackinac Center adjunct scholar. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.

ISSN: 1093-2240,
SKU: V2005-35

Summary

The phenomenon commonly described as “globalization” reflects an increasing degree of economic and political interdependence among the world’s nations. Though critics focus on the dislocations that are associated with globalization, it also helps create increased living standards and prosperity by lowering international economic barriers.